Archives for April 2015

The Massachusetts Supreme Judicial Court today released an important decision regarding the status of Boston cab drivers, concluding that the drivers were properly classified as independent contractors and not as employees. In addition to putting asunder the apparent plans of the Plaintiffs and their lawyers for huge paydays, the court’s ruling sheds lights on situations when the broad Massachusetts Independent Contractor Statute may not apply to turn an otherwise agreed-upon business relationship into an employment agreement.

The Boston cab industry is regulated under a 1930s grant of authority to the city’s police commissioner. Cab drivers must, among other things, obtain medallions and undergo specific training in order to conduct business. They have long been independently employed individuals who frequently leased cabs and medallions from their owners, who were named as the defendants in the lawsuit. The court rejected the plaintiffs’ arguments that they provided services to the defendants and therefore must be treated as employees. Although it found that the Independent Contractor Statute applied to the taxi cab industry, it concluded that the drivers met the three criteria set out in it. The case is Sebago v. Boston Cab Dispatch, Inc.

In a case that highlights the difficulties of enforcing even valid noncompetition agreements against former employees, a superior court judge recently refused an enforcement request against former employees working for a competitor, despite apparent violations of their agreements. The terms of the parties’ contract notwithstanding, the court refused to enforce the restrictions against competition because the employer was unable to demonstrate that they either possessed proprietary information or would damage their former employer’s legitimate business interests by selling competitive products to its customers.

The result is a common one in the noncompetition enforcement world, where the existence of a written agreement barring certain post-employment activity is not nearly enough, standing alone, to support a court order blocking a worker from his/her new job. Employers must also demonstrate they have a substantive business reason for such an order. Generally, that standard can be met by showing that a former employee is competing unfairly by, for example, using trade secrets or confidential information that belongs to the company. More commonly, employers try to satisfy the requirement by demonstrating that the worker is damaging what’s termed its “goodwill” — the relationship it has established with its customers — by calling on them to sell a competitor’s products.

Employers’ claims often bog down on this latter issue, since a former employee normally argues that personal relationships with customers belong to him/her, not to the company. The argument is often compelling, particularly when salespeople are involved. In many cases, employers trying to overcome this problem are unprepared. They cannot adequately counter a worker’s contention that no one else at the company ever met relevant customers, and they often appear in court without hard evidence that a former employee even improperly solicited a customer. If customers track down a former employee at a new job, an anti-solicitation provision in a noncompetition agreement may not even come into serious play in an enforcement effort.

Employers with legitimate interests to protect should take note of these issues and prepare in advance to protect them. Broad, generally applicable non-compete forms may be insufficient and, in many cases, efforts to block employment is viewed by courts as excessive. A carefully drawn noncompetition agreement that applies to each employee’s particular job coupled with adequate protection of confidential data are probably the best ways to ensure that former workers cannot damage a company’s interests in the marketplace.